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Monday, August 10, 2009

BREAKING NEWS: State Street Says Subprime Reserve May Be Insufficient

*the stock market should be falling off a cliff right now
State Street Corp.'s $625 million reserve fund for legal costs related to the subprime crisis "may not be sufficient," the company said in a federal filing Monday.

State Street, a Boston bank that provides custodial and money management services to the financial industry, established the reserve in 2007 for legal exposure related to fixed-income investment strategies the company employed leading up to sub-prime meltdown.

The reserve was down to $193 million as of June 30, State Street said in a filing with the Securities and Exchange Commission. In the filing, State Street said there may not be enough left in the fund to pay for ongoing litigation, as well as civil penalties from possible enforcement actions.

State Street said in June that it was sent a so-called Wells notice by the SEC, alerting the company that its asset-management unit may face a civil enforcement action over the fixed-income strategies.

State Street has faced private lawsuits and regulatory probes over investment losses in certain strategies, which the company says included sub-prime investments.

Some customers have claimed in civil lawsuits that they believed they were being sold low-risk vehicles only to find out later that the funds had made mortgage-related investments.

A company spokeswoman did not immediately respond to a request for comment Monday. In the past, the company has said that it accurately communicated the objective of its bond funds.

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